Is it a sell? Why is Morgans saying 'avoid' the Magellan (ASX:MFG) share price?

Leading brokers including Morgans give their view.

| More on:
man thinking about whether to invest in bitcoin

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares in fund manager Magellan Financial Group Ltd (ASX: MFG) were rangebound today and trade more than 4% higher at $20.56.

Magellan shares have pared long-term gains and now trade deep in the red across all relevant time frames after a string of headwinds has plagued its manager performance lately.

What do the experts think? Let's take a look at what analysts from leading investment firms are saying on the outlook for Magellan investors.

What is Morgans saying about Magellan's outlook?

Morgans takes immediate note of UK based wealth management giant St James Place withdrawing its investment mandate from Magellan's book, and also takes a balanced view of its outcome.

On the one hand, it notes the contagion risk for its flagship fund, however also notes that the withdrawal makes Magellan's headline valuation look attractive.

Despite the optimism, however, Morgans remains unconfident on Magellan's funds under management and the stability of its fees, saying that "medium term earnings risk are still present" in that regard.

Moreover, the risk of contagion or loss of another large institutional investor from St James Place's exit is a real risk which investors must consider, Morgans says. This could impact retail outflows and force retail fee reductions, Morgans says.

In the end, the broker states that "we would avoid the stock until there is more certainty in the funds under management base and earnings outlook".

It is neutral on the shares and values Magellan at $24.15 per share, in line with Jarden who have Magellan as a sell at $24.

Is Magellan a sell?

Meanwhile, Morgan Stanley says that Magellan's bear case is finally playing out after St James Place's exit, causing the broker to slash its price target by 40% to $17.50.

Morgan Stanley notes that a particular institutional client accounted for around 12% of Magellan's annual revenues, and the broker is now worried about the lumpy revenues from other large clients.

It too recognises a threat to Magellan's retail fees, which already sit at the highest amongst its peer group, and reckons a cut to Magellan's 90%+ payout ratio is likely on the horizon. Morgan Stanley thinks Magellan is a sell.

UBS is also bearish, noting that St James Place's withdrawal is a sign for broader concern. UBS notes that the institutional wealth manager accounted for 16% of Magellan's funds under management, which could risk a follow on event.

UBS says that "with the stock down 33% on the news, investors are righty, in our view, factoring in broader contagion of institutional outflows".

The investment bank itself forecasts $23 billion of net outflows over the next 2-3 years in its own modelling, according to the note.

UBS rates Magellan as a sell with these risks in mind on a valuation of just $17 per share.

Magellan share price summary

Magellan's share price is down 64% in the past 12 months after falling another 63% this year to date. Over the past month is has extended losses and has plunged 43%, and has tanked more than 32% in the last week.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Broker Notes

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Broker looking at the share price.
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »

A young man talks tech on his phone while looking at a laptop. A financial graph is superimposed across the image.
Broker Notes

Guess which ASX 200 share offers 12% upside and a 4% dividend yield

Bell Potter just slapped a buy rating on this stock.

Read more »

A man leaps from a stack of gold coins to the next, each one higher than the last.
Broker Notes

Qantas or Telstra share price: Which will climb higher in 2024?

Let's see what top broker Goldman Sachs has to say about these ASX blue-chip stocks.

Read more »

A woman smiles as she sits on the bus using her phone and listening to music through headphones.
Small Cap Shares

3 small-cap ASX shares with 'long runways for growth'

DNR's Sam Twidale reckons investors could do worse than buy these guys for the long run.

Read more »

Woman using laptop for job search
Investing Strategies

2 ASX 200 shares to buy for 'strong growth' at decent prices right now

Searching for a bargain? Here's a pair that Catapult's Dylan Evans has his eyes on at the moment.

Read more »

A Paladin Energy miner wearing a hard hat and protective gear stands in front of a large mining truck and smiles to the camera.
Energy Shares

Uranium is set to boom, and this is the 'premium' ASX stock to buy

Shaw and Partners' Jed Richards reckons these are the shares to buy for the nuclear energy theme.

Read more »

female in hard hat crosses fingers
Investing Strategies

The ASX 200 stock that could get second time lucky

These shares have failed to impress in 2024, but many experts believe it's a bargain buy.

Read more »